Bank lending to SMEs falls by £400m

Figures released by the Bank of England in yesterday’s Trends in Lending report showed that lending to smaller businesses through the government’s Funding for Lending Scheme (FLS) dropped by hundreds of millions of pounds in the last quarter.

£170 billion was issued in loans during July and £169.5 billion in August, according to the report.

The FLS was created to help make cheap loans to businesses more readily available, but over half of the businesses surveyed said that loans remain “unaffordable,” while a similar number described availability of credit as “poor” or “very poor.”

The scheme is aimed primarily at SMEs but also lends to bigger businesses – although lending to large firms also fell to £3.9 billion during the same period.

To make up for the shortfall, non-banking groups such as the peer-to-peer lenders Funding Circle are gaining traction among smaller businesses.

“Net lending to small businesses is still falling, which is disappointing given their immense importance to the economy,” Funding Circle founder Samir Desai told The Telegraph. “Traditional banks are hamstrung by legacy issues, limiting their capacity to lend.”

“The unprecedented level of demand we are seeing from creditworthy firms at Funding Circle suggests it’s not demand for finance that is falling, but instead demand for a traditional bank loan,” he added.